Status Update on Treasury's Two Active Investment Programs (GAO-20-218R)

Summary

A GAO report to congressional committees, GAO-20-218R, dated December 16, 2019, on the Troubled Asset Relief Program (TARP). It recalls that the Emergency Economic Stabilization Act of 2008 initially authorized Treasury to distribute $700 billion and that Congress later reduced the authorized amount to a maximum of $475 billion. Treasury created the Office of Financial Stability to manage TARP activities and programs. The report gives an update on the status of Treasury's investment and participation in the remaining TARP investment programs as of September 30, 2019, under the act's provision that GAO report at least annually on TARP.

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441 G St. N.W.
Washington, DC 20548

December 16, 2019

Congressional Committees

Troubled Asset Relief Program: Status Update on Treasury’s Two Active Investment
Programs

The Emergency Economic Stabilization Act of 2008 (EESA) initially authorized the Department
of the Treasury (Treasury) to distribute $700 billion in assistance to financial institutions and
markets, businesses, homeowners, and consumers through the Troubled Asset Relief Program
1
(TARP). However, as the severity and immediacy of the 2008 financial crisis began to diminish,
Congress reduced the authorized amount to a maximum of $475 billion as part of the Dodd-
2
Frank Wall Street Reform and Consumer Protection Act. TARP costs were not expected to
reach the authorized amounts and, over time, the projected costs declined as financial
institutions repaid some assistance and the government exited programs.

Treasury created the Office of Financial Stability (OFS) to manage TARP activities and
programs, which have included a variety of bank investment, credit market, housing, and other
programs focused on stabilizing the U.S. financial system, restarting economic growth, and
preventing avoidable foreclosures. Under OFS, TARP has injected capital into key financial
institutions, implemented programs to address problems in the securitization markets, provided
assistance to the automobile industry, and offered incentives for modifying residential
mortgages. EESA, as amended, includes a provision that GAO report at least annually on TARP
3
activities and performance. Since then, we have been monitoring, analyzing, and providing
4
updates on TARP programs in response to this provision. This report provides an update on
the status of Treasury’s investment and participation in the remaining TARP investment
programs, as of September 30, 2019. Specifically, this report looks at two programs:

1
Pub. L. No. 110-343, tit. I, 122 Stat. 3765, 3767-3780 (codified as amended at 12 U.S.C. §§ 5211-5241).
2
Pub. L. No. 111-203, § 1302, 124 Stat. 1376, 2133 (2010) (codified at 12 U.S.C. §5225(a)).
3
EESA included a provision that GAO report at least every 60 days on TARP activities and performance. The GAO
Mandates Revision Act of 2016 revised GAO’s reporting requirement to annually. See Pub. L. No. 114-301, § 3(a),
130 Stat. 1514 (codified at 12 U.S.C. § 5226(a)(3)).
4
See, for example, our recent reports on TARP investment programs: GAO, Troubled Asset Relief Program: Few
Participants Remain as Treasury Continues to Wind Down Capital Purchase Program, GAO-17-422 (Washington,
D.C.: Mar. 29, 2017); Troubled Asset Relief Program: New Effort to Wind Down the Community Development Capital
Initiative, GAO-17-96 (Washington, D.C.: Nov. 4, 2016); Troubled Asset Relief Program: Status of Remaining
Investment Programs, GAO-16-91R (Washington, D.C.: Nov. 3, 2015); Troubled Asset Relief Program: Status of
GAO Recommendations, GAO-15-813 (Washington, D.C.: Sept. 4, 2015); and Community Development Capital
Initiative: Status of the Program Investments and Participants, GAO-15-542 (Washington, D.C.: May 5, 2015).

Page 1 GAO-20-218R TARP: Status of Investment Programs
• The Capital Purchase Program (CPP) was designed to provide capital to financially
viable financial institutions through the purchase of senior preferred shares that would
pay dividends and warrants to purchase shares of common or preferred stock. 5

• The Community Development Capital Initiative (CDCI) was designed to provide capital
to Community Development Financial Institutions (CDFI) by purchasing preferred shares
and subordinated debentures. 6

Scope and Methodology

To describe the status of these programs, we reviewed relevant documentation from Treasury
(including its Monthly Report to Congress, Monthly TARP Update reports, and OFS’s financial
statements), obtained information from Treasury officials, and reviewed prior TARP reports
issued by GAO. To identify Treasury’s current efforts to exit from outstanding investments made
under these programs, we interviewed Treasury officials and reviewed relevant documentation.
This report contains the most recently available public data found in Treasury’s reports at the
time of our review (as of September 30, 2019). These data include obligations and
disbursements, as well as the number of remaining TARP participants. We determined that the
financial information used in these reports were sufficiently reliable to assess the status of CPP
and CDCI based on the result of our audits of TARP financial statements from fiscal year 2009
through 2019. In addition, as part of our annual audit of OFS’s financial statement, we tested its
internal controls over financial reporting and found them effective. 7

We also assessed the financial condition of the seven institutions that remained in CPP and
CDCI as of September 30, 2019. We analyzed the most recently available financial and
regulatory annual data from S&P Global Market Intelligence, which provides comprehensive
regulatory financial data on financial institutions. 8 For example, we compared various indicators
of financial health, such as return on average assets and reserves to nonperforming loans. We
relied on our prior data reliability assessments and verified that the data collection process had
not changed by reviewing documentation and information provided by S&P Global Market
Intelligence. We determined that the financial information we used was sufficiently reliable for
the purpose of assessing the institutions’ financial condition. We also leveraged our past
reporting on TARP to inform our assessments of the financial institutions.

5
Preferred shares are a class of ownership in a corporation that generally has a higher claim on assets and earnings
than it does in common stock. A warrant is an option to buy shares of common stock or preferred stock at a
predetermined price on or before a specified date.
6
CDFIs are financial institutions that provide financing and related services to communities and populations that lack
access to credit, capital, and financial services. Although CDFIs include banks, thrifts, credit unions, loan funds, and
venture capital funds, only institutions that have a federal banking or credit union regulator (i.e., banks, thrifts, and
credit unions) could apply for CDCI assistance. Subordinated debentures are bonds whose claim on income and
assets of the issuer in the event of default or if the issuer files for bankruptcy is ranked below the claims of senior
bondholders, but above all classes of equity.
7
See GAO, Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) FY 2019 and FY 2018
Financial Statements, GAO-20-160R (Washington, D.C.: Nov. 8, 2019) for more complete information on TARP
programs.
8
S&P Global Market Intelligence is a leading provider of financial data, news, and analytics. In prior GAO work, we
used data from SNL Financial. SNL Financial recently became S&P Global Market Intelligence, a division of S&P
Global.

Page 2 GAO-20-218R TARP: Status of Investment Programs
We conducted this performance audit from July 2019 through December 2019 in accordance
with generally accepted government auditing standards. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on our audit
objectives.

Summary

As of September 30, 2019, seven participants remained in TARP’s two active investment
9
programs. Those participants included two institutions in CPP and five institutions in CDCI.
Combined, Treasury’s total investment for these programs was $205.47 billion, the vast majority
of which went to CPP. By the end of September 2019, Treasury had received $227.36 billion in
proceeds (repayments and income), while outstanding investments (the amount still owed to
Treasury) totaled about $40 million. Specifically,

• Treasury’s total investment for the CPP program has been $204.90 billion; by December
2009, Treasury had disbursed all funds to 707 financial institutions nationwide. As of
September 30, 2019, Treasury had received $226.77 billion in repayments and income
from its CPP investments and sales of original CPP investments, exceeding the amount
originally disbursed by $21.87 billion. The original outstanding investment balance was
about $20 million. Two institutions remained in the program, as of September 30, 2019.

• Treasury’s total investment for the CDCI program has been $570 million for 84
institutions. Of the total investment, Treasury disbursed $207 million through CDCI from
July through September 2010. An additional $363 million represented exchanges of
investments from CPP into CDCI. As of September 30, 2019, Treasury had received
$587 million in repayments and income from CDCI participants. The original outstanding
investment balance was $22.75 million. Five institutions remained in the program, as of
September 30, 2019.

Enclosures 1 and 2 provide details of these two remaining programs, including information on
repayments, expected lifetime costs, and remaining institutions.

The overall financial condition of the institutions that remained in the two investment programs,
as of the end of 2018, appears to have improved since 2011. However, some institutions still
show signs of financial weakness as discussed in enclosure 2. According to Treasury officials,
Treasury regularly monitors all institutions remaining in the programs. For instance, Treasury’s
financial agent provides quarterly valuations and credit reports for all of the institutions
remaining in the CPP and CDCI portfolios. Also, Treasury officials remain in contact with the
institutions’ respective regulators to request information as needed. Treasury officials use this
information and other publicly available financial information to review the status of the portfolio
and to analyze exit proposals when they receive them from institutions. Officials told us that a
number of factors may affect an institution’s ability to exit CPP or CDCI, including its compliance
with regulatory actions, its financial condition, the structure of Treasury’s investment in it, and
market trends.

9
On October 16, 2019, the North Side Community Federal Credit Union made a full repayment and is no longer part
of the CDCI program. The data in this report are as of September 30, 2019.

Page 3 GAO-20-218R TARP: Status of Investment Programs
Treasury officials said that Treasury prefers restructuring investments with institutions instead of
writing off remaining assets. They noted that a write-off would result in a loss to the taxpayer
and could have potential impacts on the institution and the community it serves. They also said
that Treasury plans to continue working with and monitoring the remaining institutions in hopes
that all will be able to exit the program. However, Treasury will continue to consider all available
options within its rights to completely wind down the investment programs. In the meantime,
Treasury officials told us that OFS continues to pursue efforts to streamline operations and
reduce costs across all TARP programs. According to Treasury, its current cost-benefit analysis
suggests that the best approach is to continue working with the institutions and exploring future
exit strategies.

Agency Comments

We provided Treasury with a draft copy of this report for review and comment. In its comments,
reproduced in enclosure 3, Treasury noted it had reviewed the draft report and maintained a
commitment to high standards and transparency as it carries out its responsibilities for
managing TARP.

-------------------

We are sending copies of this report to the appropriate congressional committees. This report
will also be available at no charge on our website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact me at (202) 512-8678
or garciadiazd@gao.gov. Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. In addition to the contact named above,
Karen Tremba (Assistant Director), Anar N. Jessani (Analyst-in-Charge), Emily Bond, William
Chatlos, Lynda Downing, Risto Laboski, John T. McGrail, and Marc Molino made key
contributions to this report.

Daniel Garcia-Diaz
Director
Financial Markets and Community Investment

Enclosures – 3

Page 4 GAO-20-218R TARP: Status of Investment Programs
List of Congressional Committees

The Honorable Richard Shelby
Chairman
The Honorable Patrick Leahy
Vice Chairman
Committee on Appropriations
United States Senate

The Honorable Mike Crapo
Chairman
The Honorable Sherrod Brown
Ranking Member
Committee on Banking, Housing, and Urban Affairs
United States Senate

The Honorable Mike Enzi
Chairman
The Honorable Bernie Sanders
Ranking Member
Committee on the Budget
United States Senate

The Honorable Chuck Grassley
Chairman
The Honorable Ron Wyden
Ranking Member
Committee on Finance
United States Senate

The Honorable Nita M. Lowey
Chairwoman
The Honorable Kay Granger
Ranking Member
Committee on Appropriations
House of Representatives

The Honorable John Yarmuth
Chairman
The Honorable Steve Womack
Ranking Member
Committee on the Budget
House of Representatives

The Honorable Maxine Waters
Chairwoman
The Honorable Patrick McHenry
Ranking Member
Committee on Financial Services
House of Representatives

Page 5 GAO-20-218R TARP: Status of Investment Programs
The Honorable Richard Neal
Chairman
The Honorable Kevin Brady
Ranking Member
Committee on Ways and Means
House of Representatives

(103684)

Page 6 GAO-20-218R TARP: Status of Investment Programs
ENCLOSURE 1 PRELIMINARY: THIS PRELIMINARY WORK OF GAO IS SUBJECT TO REVISION AND SHOULD NOT BE
REPRODUCED OR DISTRIBUTED. SOME GRAPHICS MAY BE ENTITLED TO COPYRIGHT.PRELIMINARY
Congressional Committees

Troubled Asset Relief Program
Capital Purchase Program

Background Status
The Capital Purchase Program Treasury has largely wound down CPP. Treasury disbursed $204.90
(CPP) was created to help stabilize billion to 707 financial institutions nationwide from October 2008 through
the financial markets and banking December 2009. As of September 30, 2019, it had received $226.77
system by providing capital to billion in repayments and income, exceeding the total original outlays by
financially viable and regulated $21.87 billion. Those repayments and income sources include:
financial institutions. It was the
largest investment program initiated • $199.67 billion in repayments and sales of original CPP
under the Troubled Asset Relief investments;
Program (TARP).
• $12.15 billion in dividends and interest;
The program started in October
2008; it was closed to new • $6.89 billion in proceeds in excess of costs; and
participants in December 2009. • $8.06 billion from the sale of warrants (see fig.1).
Qualified financial institutions that After accounting for write-offs and realized losses from sales totaling
have participated in the program
$5.21 billion, the original outstanding balance of CPP investments was
were eligible to receive an
$17 million as of September 30, 2019. Treasury estimated a lifetime
investment of 1 percent to 3 percent
of their risk-weighted assets, up to a
income of $16.30 billion for CPP as of September 30, 2019.
maximum of $25 billion. In exchange Figure 1: Status of the Capital Purchase Program, as of September 30, 2019
for the investment, the Department
of the Treasury (Treasury) generally
received senior preferred shares
that would pay dividends and
warrants to purchase shares of
common or preferred stock. Since
the end of 2014, all of the
institutions with outstanding
preferred share investments have
been required to pay dividends at a
rate of 9 percent, rather than the 5
percent rate that had been in place
for the previous 5 years. Institutions
are allowed to repay CPP
investments with the approval of
their primary federal bank regulator
and repurchase warrants afterward.

a
End date is the date on which the program stopped acquiring new assets and receiving funding.
b
Includes $363 million from institutions that transferred to the Community Development Capital
For more information, contact Daniel Garcia- Initiative and $2.2 billion from institutions that transferred to the Small Business Lending Fund.
Diaz at (202) 512-8678 or
garciadiazd@gao.gov.

Page 7 GAO-20-218R TARP: Status of Remaining Investment Programs
ENCLOSURE 1 PRELIMINARY: THIS PRELIMINARY WORK OF GAO IS SUBJECT TO REVISION AND SHOULD NOT BE
REPRODUCED OR DISTRIBUTED. SOME GRAPHICS MAY BE ENTITLED TO COPYRIGHT.PRELIMINARY
As shown in figure 2, as of September 30, 2019, all but two of the original
707 institutions that participated in CPP had exited the program by:
• repurchasing their preferred shares or subordinated debentures in
full;
• refinacing their shares through other federal programs, including
the Community Development Capital Initiative and the Small
Business Lending Fund—a Treasury fund that is separate from
TARP;
• having their shares sold through auction;
• going into bankruptcy or receivership; or
• merging with other institutions.
Figure 2: Status of Institutions that Received Capital Purchase Program
Investments, as of September 30, 2019

a
When investments are restructured, Treasury receives cash or other securities that can generally be
sold more easily than preferred stock, but Treasury’s investments are sometimes sold at a discount.

As shown in table 1, as of September 30, 2019, the remaining $17.37
million in outstanding CPP investments was distributed among two
institutions. The institutions remaining in CPP showed improvement in
their financial ratios, including their ratio of tangible equity and loss
reserves to nonperforming assets plus loans 90 or more days past due
(Texas ratio) from 2011 to 2018.
Table 1: Remaining Capital Purchase Program Investments, as of September 30, 2019
Percentage of total
outstanding
Investment amount investment
Institution Location (dollars in millions) (percentage)
OneUnited Bank Boston, MA 12.06 69.43
Harbor Bankshares Baltimore, 5.31 30.57
Corporation MD
All outstanding 17.37 100

Source: GAO analysis of Department of the Treasury data. | GAO-20-218R

Page 8 GAO-20-218R TARP: Status of Remaining Investment Programs
ENCLOSURE 2 PRELIMINARY: THIS PRELIMINARY WORK OF GAO IS SUBJECT TO REVISION AND SHOULD NOT BE
REPRODUCED OR DISTRIBUTED. SOME GRAPHICS MAY BE ENTITLED TO COPYRIGHT.PRELIMINARY
Congressional Committees

Troubled Asset Relief Program
Community Development Capital Initiative

Background Status
The Department of the Treasury Treasury continues to manage CDCI. Treasury’s total investment for this
(Treasury) created the Community program has been $570 million for 84 institutions. As shown in figure 3,
Development Capital Initiative Treasury originally disbursed $207 million through CDCI from February
(CDCI) to help mitigate the adverse through September 2010. An additional $363 million represented
impacts of the financial crisis on exchanges of investments from the Capital Purchase Program into CDCI.
communities underserved by As of September 30, 2019, Treasury had received $587 million in
traditional banks. CDCI provided
principal repayments and dividend income from CDCI participants; its
capital to certain Community
original outstanding investment balance was $23 million. As of the same
Development Financial Institutions,
including banks, thrifts, and credit date, Treasury had written off $27 million and CDCI participants had paid
unions, which offer financial services $66 million in dividends. Treasury has estimated the program’s lifetime
to low- and moderate-income, costs to be $63 million.
minority, and underserved Figure 3: Status of the Community Development Capital Initiative, as of September
communities. 30, 2019
Treasury announced the program in
October 2009; it was closed to new
participants in September 2010.
CDCI provided capital to Community
Development Financial Institutions
by purchasing preferred equity or
subordinated debt from them. These
institutions are required to make
quarterly dividend or interest
payments to Treasury until they exit
the program. Institutions are
expected to repay the investments
with the approval of their primary
federal bank regulator. CDCI
preferred equity investments had an
initial dividend rate of 2 percent.
Since 2018, the dividend rate has
increased to 9 percent for all
program participants. The terms of
the rates are specified in the Note: Treasury began holding common stock for CDCI on October 28, 2011, after entering into an
agreements between Treasury and agreement with one institution to convert all of its preferred stock held by Treasury for common stock.
the institutions. a
Treasury first announced CDCI in October 2009. The program first provided capital to Community
Development Financial Institutions in 2010.
b
End date is the date on which the program stopped acquiring new assets and receiving funding.

As shown in figure 4, as of September 30, 2019, five of the original 84
CDCI institutions remained in the program. Institutions have exited the
program by:
• repaying Treasury in full;
• merging with another institution;
For more information, contact Daniel Garcia-
Diaz at (202) 512-8678 or • leaving as a result of its subsidiary bank’s failure; or
garciadiazd@gao.gov.
• leaving through Treasury’s CDCI Early Repurchase Option.
Page 9 GAO-20-218R TARP: Status of Remaining Investment Programs
ENCLOSURE 2 PRELIMINARY: THIS PRELIMINARY WORK OF GAO IS SUBJECT TO REVISION AND SHOULD NOT BE
REPRODUCED OR DISTRIBUTED. SOME GRAPHICS MAY BE ENTITLED TO COPYRIGHT.PRELIMINARY
Under the CDCI Early Repurchase Option, eligible institutions were able
to repurchase their outstanding securities owned by Treasury at fair value
for a limited period of time. To participate in this option, institutions must
have submitted a proposal to Treasury no later than December 9, 2016.
Figure 4: Status of Institutions that Received Community Development Capital
Initiative Investments, as of September 30, 2019

a
On October 16, 2019, the North Side Community Federal Credit Union made a full repayment and is
no longer part of the CDCI program. The data in this report are as of September 30, 2019.

As shown in table 2, as of September 30, 2019, the remaining $22.75
million in outstanding CDCI investments was distributed among five
institutions, with one institution accounting for 83 percent of the total. The
institutions remaining in CDCI showed improvement from 2011 to 2016,
but some of the metrics of loans ratio and median net worth ratio of the
credit unions worsened from 2016 to 2018.
Table 2: Remaining Community Development Capital Initiative Investments, as of
September 30, 2019
Investment Percentage
amount of total
(dollars in outstanding
Institution Location millions) (percentage)
Carver Bancorp, Inc New York, NY 18.98 83.39
Cooperative Center Federal Credit Union Berkeley, CA 2.80 12.30
D.C. Federal Credit Union Washington, 0.50 2.20
D.C.
North Side Community Federal Credit Chicago, IL 0.33 1.45
a
Union
Buffalo Cooperative Federal Credit Union Buffalo, NY 0.15 0.66
b
All CDCI outstanding 22.75 100.00

Source: GAO analysis of the Department of the Treasury data. | GAO-20-218R
a
On October 16, 2019, the North Side Community Federal Credit Union made a full repayment and is
no longer part of the CDCI program. The data in this report are as of September 30, 2019.
b
Outstanding investments do not sum to total due to rounding.

Page 10 GAO-20-218R TARP: Status of Remaining Investment Programs
ENCLOSURE 3: Comments from the Department of the Treasury

Page 11 GAO-20-218R TARP: Status of Investment Programs
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